Thursday, December 8th, 2016 MST

Which to buy, gold or silver?

Investors new to precious metals often ask which is better, gold or silver. Although not a difficult topic, discussing the matter can be long and convoluted. This blog post is not intended to cover all aspects of the topic but will lay out some considerations for investors when deciding which metal to go with.

What makes the decisions more confusing for new investors are assertions such as “Silver is an industrial metal, while gold is a monetary metal.” and “Because silver is an industrial metal, demand may fall in a recession and its price may not keep up with gold’s, on a percentage basis.”

First, both metals have been money throughout recorded history. The Old Testament tells of Abraham weighing four hundred talents of silver, “the current money,” for Ephron the merchant. And, everyone knows of the infamous thirty pieces received by Judas for betraying Jesus. More recently, silver coins circulated as money in our great republic until 1965, when, because of inflation, the silver content became worth more than the face value of the coins and they disappeared from circulation. (Actually, what happened was Gresham’s Law at work. Gresham’s Law shows that even the most unsophisticated know the difference between silver coins and base metal coins.)

Gold, too, is mentioned extensively in the Old Testament and was used thought history as money. Actually, it is accurate to say that gold and silver have been valued in all civilizations. In the United States, gold was used as money until 1933. Today, 109 countries, and the IMF, claim gold as reserves. Although a few governments (or their central banks) own silver, none claim its silver to be reserves. Consequently, because governments hold gold as reserves, but not silver, many analysts say that gold is a monetary metal and silver is not. In doing so, they ignore silver’s historic use as money.

As I view silver, its industrial use is a plus, a big plus. Daily, silver is used in applications that never result in reclamation. As for new gold being mined, little is used industrially and most is turned into jewelry, which is one form of owning gold, especially in India and the Middle East where bullion jewelry is the norm. Just because silver has many industrial uses does not mean it is no longer a monetary metal.

A final point: the so-called “smart money,” which usually is “big money,” tends to go with gold because it is much easier to handle and because the gold market is less volatile than the silver market. (With the development of ETFs, a lot of “smart money” is making some big silver investments because handling the silver is no longer an issue.) And, because the smart money usually recognizes a developing problem early, gold often gets the jump on silver in the early stages of some precious metals bull markets. A recent Doug Casey analysis noted that “gold is now up 15% since August 1, while silver has rallied only 6%.” That is too short a period to conclude that gold is a better investment than silver.

However, silver’s lagging gold since August 1 suggests to me that silver at this time is definitely the way to go because over the long-run silver turns in better percentage gains than does gold. With all the industrial demands for silver, there is reason to believe that it should do much better than gold this time. Additionally, there is the impact of the masses.

More people have used silver as money than have used gold. When the masses come to the gold/silver market, they will choose silver simply because they will get more physical metal for their dollars. In the aggregate, the masses have more money than the wealthy, because there are so many of them. That’s why they’re called the masses. The result will be a lot of money being poured into silver during any monetary crisis or period of sustained inflation.

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